Cryptocurrency rug pulls are a prevalent issue in the industry, but they are not difficult to spot for investors who are aware of the distinct features that these scams usually share. A recent security insights report by blockchain security auditor Hacken highlights the trends in Q3 crypto hacks and evaluates how affected projects approached security.
The report focuses specifically on rug pulls, which are a type of exit scam where a team artificially inflates their project’s token value and then suddenly withdraws the liquidity, leaving investors with worthless assets. According to Hacken, rug pulls accounted for over 65% of all crypto hacks in Q3 2023.
One of the main reasons why rug pulls are so widespread is because they are easy to create. Scammers use token factories that exhibit the same fraudulent behavior to produce fake tokens on a large scale. This ease of creation makes it crucial for investors to be vigilant and take precautions when assessing a project.
Hacken emphasizes the importance of checking for an independent third-party audit when evaluating a crypto project. However, the report reveals that out of the 78 Q3 rug pulls examined, only 12 reported having completed any kind of audit. Even when a project provides an audit, investors should not assume it guarantees protection from scams. Hacken warns that a project can undergo an audit and have a poor score, yet users may overlook this and consider the mere fact of the audit as sufficient evidence of legitimacy.
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Dyma Budorin, co-founder and CEO of Hacken, explains that investors often overlook red flags like the absence of audits due to the fear of missing out (FOMO). The industry has seen success stories with meme coins like Pepe (PEPE) and Shiba Inu (SHIB), where small investments led to significant profits. This history of quick gains leads people to hope for similar outcomes in future investments, causing them to ignore warning signs.
Scammers are aware of this desire for substantial returns in a short timeframe and capitalize on it by mimicking successful projects. They often reference thriving projects to intensify the FOMO surrounding the next big opportunity. Budorin emphasizes that investing in cryptocurrency has become a simple process that only requires a few clicks, leading to impulsive decision-making.
In order to protect themselves from rug pulls and other scams, investors should exercise caution and conduct thorough research. It is essential to look beyond surface-level audits and assess the overall credibility of a project. Checking the team’s experience, reviewing their whitepaper, and analyzing the tokenomics are all important steps in evaluating the legitimacy of a cryptocurrency project.
Furthermore, investors should not solely rely on external factors like audits. It is crucial to develop a basic understanding of the underlying technology and the project’s goals. By educating themselves about the fundamentals of blockchain technology and cryptocurrency, investors can make more informed decisions and avoid falling victim to scams.
Additionally, it is advisable to seek advice and opinions from trusted experts and experienced individuals in the industry. Networking within the crypto community and participating in forums and discussion groups can provide valuable insights and help identify potential red flags.
In conclusion, while cryptocurrency rug pulls may be prevalent, they are not too difficult to spot for vigilant investors. By being aware of the distinct features that these scams typically exhibit, conducting thorough research, and seeking advice from trusted sources, investors can protect themselves from falling victim to fraudulent projects. As the crypto industry continues to evolve, it is crucial for investors to stay informed and remain cautious in order to mitigate the risks associated with rug pulls and other scams.
